UBS Pension Forum – UBS Pension Index and regional analysis on aging
The outlook for the Swiss pension system deteriorated considerably at the end of 2015. This is demonstrated by the newly launched UBS Pension Index Switzerland. The index is an indicator of the health and stability of the Swiss pension system. Sluggish economic growth and the observed demographic turning point are pulling the index well into the red. The regional analysis shows that no Swiss canton is able to escape the impact of an aging population and the additional financial burden associated with this.
Zürich, 14. Juni 2016 – The quarterly UBS Pension Index Switzerland (see fig. 1) gauges the current state of the Swiss pension system. The index includes the most important factors for the stability of the pension system in four subindices: economic development, demographics, finance and reforms. When the UBS Pension Index Switzerland shows a negative value, this means that the dynamics in the pension system have deteriorated compared to the same quarter of the previous year; when the value is a positive, there has been an improvement. The development is measured in relation to the evolution of the series during the reference period 2005 to 2015 (used for standardization):
Fig. 1: UBS Pension Index Switzerland and contributions of the subindices
Trend stabilized at a low level
There are two main reasons for the sharp drop in the UBS Pension Index Switzerland at the end of 2015: First, the subindex demographics tumbled due to the sharp increase in the old-age dependency ratio: The year 2015 marks a turning point in Swiss demographics, as for the first time more people reached retirement age than reached the age of 20. Second, the subindex economic development provided a very negative contribution. This trend reflects the strong economic decline following the Swiss National Bank's decision in January 2015 to abandon the EURCHF minimum exchange rate. In the first quarter of 2016, the UBS Pension Index Switzerland stabilized to some extent, although the trend remains clearly negative for the pension system.
Every canton is impacted by the aging population
Going forward, the declining share of the working population and significantly higher health care expenses will weigh on the financial situation of cantons and municipalities. The older the population and the more limited financial flexibility of governments and private households, the greater the challenges (see fig. 2). The younger population in French-speaking Switzerland will help reduce the future financial burden, while the cantons of central Switzerland have a greater financial cushion. The cantons of Ticino and Jura will have the biggest age-related challenges over the next 30 years. The outlook for the cantons of Zug, Schwyz and Zurich looks much better. But without an adjustment to cost distributions in government there is a threat of new debt here as well. Reforms are needed to reduce the financial burdens of cantons and municipalities.
Fig. 2: Two-dimensional assessment of the aging-related challenges of the cantons until 2045
The complete studies are available on the UBS website under the following link: www.ubs.com/vorsorgeforum
UBS Switzerland AG
Veronica Weisser, economist and pension expert
Head CIO WM Swiss Macro and Sectors
Tel. +41 44 234 50 62
Elias Hafner, economist and regional analyst
UBS CIO WM Swiss Real Estate
Tel. +41 44 234 50 62
Dominik Studer, economist
UBS CIO WM Swiss Macro and Sectors
+41 44 234 81 74
Daniel Kalt, Chief Economist Switzerland
Head CIO WM Swiss Investment Office
Tel. +41 44 234 25 60